Inflation remains sticky
Spring is nearly here, for the northern hemisphere at least. Light and warmth can often bring a natural optimism, particularly after a difficult winter. Economic and investment terminology can itself support this seasonal optimism: talking of the “green shoots of recovery”, for example.
Nevertheless, as recent events have made clear, this remains a very difficult investment environment that needs to be navigated with great care. Inflation, the central banks’ response to it and the economic and corporate implications of this remain key. Even after recent declines, current market valuations still implicitly assume that an economic “hard landing” can be avoided –in other words, that the Fed and other central banks can maintain an appropriate monetary policy approach, tight enough to cool economies without tipping them into recession or prompting major sectoral setbacks. Despite their knowledge and skills, central banks could still struggle to get this policy “flight path” right. Sticky inflation in major economies in early 2023 and the recent deterioration in financial conditions now make their task even more difficult. These factors compound the three pre-existing questions over monetary policy. First, what will the size of the impact from policy tightening be? Second, how quickly will this impact materialise? Third, can existing policy structures manage this process? Many factors still argue for central banks keeping policy tight in order to lower stubbornly high core inflation. It is now widely accepted that a given amount of monetary policy tightening now has less of an impact than in previous financial cycles: still strong labour markets may also delay its impact, as could lingering effects from pandemic fiscal stimulus. Technical questions also remain about the future changes to policy approaches and structures, as may first be attempted by the Bank of Japan. Ultimately, nonetheless, central banks will prevail: our forecast is for inflation to fall back over the next year, although it will stay above target levels. Our central scenario remains for Fed and ECB policy rates to reach “terminal” (peak) levels quite soon. But recent market expectations of Fed rate cuts in the second half of 2023, as a result of regional banking distress in the U.S. and associated concerns about market liquidity, seem overdone. We see no systemic risk, given that the decisive response of the Fed so far and the robust measures already implemented in the Eurozone following past financial crises. Financial markets may stay wary, however. Even under the assumption that the rate cycle can be managed, the potential for higher yields will keep riskier corporate bond assets under the spotlight, although we do not expect major spread widening. Equities’ gains seem likely to be modest over the next 12 months, held down both by higher interest rates and the likelihood that corporate earnings expectations have further to fall. As investors will be aware, there are now plenty of alternatives to equities as an asset class. Policy risks are, of course, not the whole story. Geopolitical risks are clearly still major. Downbeat recent corporate earnings results also suggest that many firms are reaching the limit of their abilities to boost revenues and profits as falling real wages moderate volumes and pricing power: as always, the consumer is ultimately king. We also need to be careful not to let a focus on immediate market trends distract our attention from larger-scale structural change. Recent history should remind us that long-term issues (e.g. demographics) can start to be relevant much sooner than you think – note China, for example. One red thread running through structural market and economic change is ESG investment. This will continue to have an impact on immediate and future investment practice and risks, and cannot safely be ignored, whatever one’s individual priorities. Tech is another issue of major continuing relevance, irrespective of the ebbs and flows of sectoral stock prices. These two issues of ESG and tech are now increasingly intertwined. It is notable that our long-term investment themes, summarised later in this publication, fall naturally into three groups: resource transition, population support and next-phase technology. In summary, we stick to the overall view presented in our 2023 outlook. Spring may be here, but sticky inflation and shifting monetary policy expectations – prompted for example by earlier-than-expected rate cuts – could continue to trigger short-term volatility in bond and equities markets. This will be a case of recovery constrained. Structural economic and market changes add further to the need for portfolios to be managed with great care and attention: we aim to help you to do this.
02 Risks in our sights
Geopolitics and the sanctions nexus. In response to Russia’s war on Ukraine, developed western nations and their allies have imposed sanctions on Russia, disrupting supply chains and driving up food and energy prices. With the conflict unlikely to be resolved over the next twelve months and a further escalation possible, not only are additional sanctions quite likely but geopolitical considerations will also drive changes to business models and supply chains going forward. One area to watch is how the political and economic ties between Russia and China develop as any kind of Chinese military support for the invasion might trigger additional sanctions to those recently expanded by the U.S. to weaken China’s position in their bilateral technology arms race. Such additional sanctions cannot be completely ruled out after the U.S. recently convinced European and Japanese allies to also impose controls on exports of high-performance semiconductors to China despite these allies’ usual caution given their close economic ties with China. Inflation and central bank policy. Supply chain disruptions as well as high food and energy prices are the drivers of high inflation – the primary concern of financial markets and central bankers. While supply chains have been recovering and are being diversified, food and energy prices are prominent 'known unknowns' with regard to the extent and duration of their impact. Inflation at persistently elevated levels combined with robust economic data form the backdrop for the continuing tight monetary policies of the Fed and the ECB. Data-dependent decisions may be reflected in the swings of bond markets and interest rate sensitive stocks. Stability of the financial system. Rising interest rates can be a destabilising factor for financial markets, as observed in the first half of March. when a lack of liquidity resulted in the closure of a number of regional U.S. banks and threatened to cause contagion on a global scale.
Worries regarding banking sector stability currently overshadow inflation and geopolitical concerns.
03 Macroeconomic and asset class update
Macroeconomics
Prior to the recent turmoil in the banking sector, inflation remained centre stage for both central banks and markets. However, recent market volatility may prompt monetary policy decision-makers to opt for a more moderate rate path than they would have based exclusively on recent data showing resilient consumption and ongoing price pressures. Once market confidence is restored, containing inflation should return to the forefront. Easing supply-side price pressures due to cheaper energy and supply chains returning to normal have dampened headline inflation in particular.
However, in the aftermath of the pandemic, the transmission mechanisms of major central banks’ tightening have had a sluggish impact on aggregate demand so far – mainly due to the still lingering effects of strong fiscal stimuli, the slow reduction in companies’ order backlogs, and imbalanced labour markets in many advanced economies. As a result, core inflation in particular remains at stubbornly too high levels. This will encourage major central banks to keep rates firmly in check for as long as necessary until lower aggregate demand diminishes the underlying price pressures and brings inflation back to desired levels.
Due to the mostly warm winter in Europe and the U.S., the continuing robust development of labour markets and private demand – which is still decent despite high inflation rates – we now expect more resilient economic performance than three months ago. While the global economy is expected to grow by 2.7% in 2023, both the U.S. and the Eurozone should be able to expand over the full year 2023 by 0.7% and 0.8% respectively. By contrast, this year we expect the UK economy to contract by -0.5%. We are more optimistic with regards to this year’s GDP growth in Japan (1.0%) and China (5.5%). To conclude, we consider the likelihood of a severe, prolonged recessionary trend in any of the large industrialised countries to be relatively remote.
| 2023 | 2024 | |
|---|---|---|
 U.S.* | 0.7 | 1.1 |
 Eurozone | 0.8 | 1.1 |
 Germany | 0.3 | 1.2 |
 France | 0.7 | 0.8 |
 Italy | 0.7 | 0.9 |
 Spain | 1.2 | 1.5 |
 Japan | 1.0 | 0.8 |
 China | 5.5 | 5.3 |
 World | 2.7 | 3.1 |
Note: *For the U.S., GDP growth Q4/Q4 is -0.1% in 2023 and 1.8% in 2024.
- Stubbornly sticky price pressures provoking “higher rates for longer” in major developed market economies
- Overall, in 2023, resilience likely to prevail over recession...
- ... with U.S. and euro area slightly expanding, while the UK lags behind
Fixed income
The recent credit event in the U.S. banking sector has induced considerable uncertainty regarding the outlook for policy rates. The financial authorities have reacted forcefully, however. Additionally, the U.S. labour market remains strong and inflation is proving to be sticky. In our view, this still warrants a “higher for longer” policy rate outlook. Despite U.S. 2-year Treasury yields coming down from its cycle high, they along with 10-year yields still remain close to their recent peaks. The possibility of the U.S. economy retaining its strength for longer than anticipated is expected to keep these yields at elevated levels. The downward trend in inflation expectations during the last quarter has seen a reversal on the back of elevated inflation prints this year. Although recent market upheaval has already partially upended this change, further increases are expected to be limited given that inflation is unlikely to return to previous highs. Nominal yields moving even higher should therefore also push real yields upwards.
With the magnitude of the energy crisis declining, European activity data has shown signs of an improving economic outlook. At the same time inflation is expected to remain far off the ECB’s 2% target for a prolonged period. The ECB is therefore now expected to raise its deposit rate to levels even higher than the 3.25% level seen during the 2008 financial crisis. This should keep 10-year Bund yields at elevated levels. The spreads over Bunds for Italian and Spanish 10-year bonds should see some mild widening as the reinvestments from the ECB asset purchase programme are rolled back.
- Core inflation proving stickier than expected
- Higher yields can be expected in the U.S. and the Eurozone
- Mild widening of spreads for Italian and Spanish bonds
The outlook for growth outside the U.S. is also positive due to Chinese reopening and the fears of a severe energy crisis in Europe fizzling out. The current yield on U.S. investment grade (IG) paper has been higher only around 2% of the period since the global financial crisis, while for EUR IG it has been higher for only 5% of the time. At these levels there should be strong demand from pension funds and insurance companies. Despite the recent noise surrounding the financial sector, the high proportion of more stringently regulated banks should continue to be well received by investors – especially EUR IG – given that the sector will continue to benefit from higher net interest income. Further narrowing of spreads can therefore be expected.
The high yield fundamentals are likely to remain strong despite some expected deterioration during the year. Although higher than last year, supply is likely to remain lower than the past five-year average. Nevertheless, default rates are unlikely to stay at the benign levels seen last year and are expected to rise closer towards their long-term averages. This should partially offset the recovery potential in spreads. China reopening has lifted sentiment on the EM credit segment. We are expecting to see lower default rates compared to the elevated levels of last year and the one-off loss from the exclusion of Russian issuers will not drag down the performance. The supply picture should remain favourable as issuers move to local currency debt markets. Like other credit classes the current yield provides a strong carry opportunity. However, given the front-loaded improvement in spreads already seen, further potential for improvement appears limited.
- IG segment yields at the high end of post-GFC levels
- Higher default rates to partially offset the recovery potential in spreads
- EM credit segment likely to see better sentiment than last year
“Higher for longer” policy rate outlook appears warranted with core inflation proving stickier than expected.
Equities (developed markets)
Developed stock markets rallied strongly in January but have lost most of their YTD gains since then due to returning recession fears and concerns regarding the stability of the financial system following the failure of some regional U.S. banks. In the short term we expect stock market volatility to remain high as financial stress spills over from the U.S. to Europe and investors gauge how central banks will respond to the turmoil at the same time as fighting inflation. However, we do not currently see heightened risks of a banking crisis. When banking sector concerns subside, corporate earnings and bond yields should become the main drivers of stock markets again. Unfortunately, U.S. earnings are trending down already, as companies struggle to translate rising revenues into profits. We believe earnings are also set to decline in Europe and Japan after holding up relatively well.
At the same time our fixed income forecasts imply that bonds will remain an attractive alternative to equities for the foreseeable future, limiting valuation expansion. Currently, U.S. stocks are trading around their long-term valuation average level and we do not expect any significant increase. By contrast, European and Japanese stocks still have some room for valuation rerating. Against this backdrop we see single-digit upside for U.S. stock markets over the next 12 months. We believe that European stocks could do rather better due to their larger exposure to fast-growing China and relatively attractive valuations. We still see buying opportunities in sectors with low valuations and positive gearing towards interest rates, such as energy and materials, as well as small caps.
European and Japanese stocks have some room for valuation rerating, in contrast to U.S. stocks.
- Stocks set to stay volatile for the time being due to investor concerns about systemic stability
- Earnings declining as margins recede from record levels
- We continue to see buying opportunities in specific segments
Equities (emerging markets)
Emerging market (EM) equities broadly carried on their resounding Q4 rally into January 2023. However, with major developed markets (DMs) beginning to price in "higher rates for longer" in February, EM equities again started feeling the headwinds from tighter financial conditions in DMs and foreign investors’ fading risk appetite. In addition, the resurgence of tensions between Beijing and Washington, which weighed primarily on Chinese equities, also impacted Asian and global EM indices given their large market cap exposure to Chinese stocks. We do not expect EM equities to decouple broadly from global equity trends – particularly not during times of global risk-off sentiment, as recently experienced. However, risk-taking investors could look for market-specific fundamental differences within the EM universe that offer opportunities for relative outperformance going forward.
After three years of Covid restrictions, we expect China’s V-shaped recovery – mainly on the back of pent-up domestic consumption demand – to generate upside for Chinese companies’ earnings growth. While we do not see China's reopening providing a major boost to the global economy, positive spillover effects are likely to be felt by markets in general and especially by companies with closer China trade ties both in Asia and elsewhere. Goods trade should expand particularly between Taiwan, South Korea, ASEAN and China, while Thailand, The Philippines, and Vietnam should benefit from Chinese tourist flows, and ASEAN may see a rise in Chinese direct investment due to reopening. All this would improve both corporate earnings expectations and investor sentiment and pave the way for a revaluation of those EM equities still trading at a valuation discount to U.S. stocks. We maintain our constructive medium-term view on Indian equities given India’s dynamic structural growth prospects as one the main beneficiaries of global supply chain restructuring. In the short term, though, Indian stocks might be one funding source for investors rebalancing their positions in North Asian markets.
- Earnings growth potential on the back of V-shaped China recovery
- Positive spillovers for companies and markets with close trade ties to China
- However, EM equities unlikely to decouple from global trend
S&P 500 | 4,100 |
DAX | 16,300 |
EuroStoxx 50 | 4,350 |
Stoxx Europe 600 | 480 |
MSCI Japan | 1,250 |
 SMI | 11,100 |
 FTSE 100 | 8,100 |
 MSCI EM | 1,020 |
 MSCI Asia ex Japan | 670 |
 MSCI Australia | 1,450 |
Commodities
Oil prices have declined from the peaks of last year but are still likely to remain elevated. Chinese demand, which fell by around 400,000 b/d last year is likely to recover. OPEC+ should continue to provide a floor while U.S. production is unlikely to materially take off. An end to the drawdown from U.S. strategic petroleum reserves should provide further tailwinds. In addition, even a small decline in Russian supply should further support tight oil supply/demand.
The potential for a recovery in demand for copper is strong. Statements by a major Chinese state-owned grid operator and the targets announced by the National Energy Administration of China point to strong demand from grid and renewables installation. In addition, the quota for local government special bond issuance is expected to remain at elevated levels. However, the positive picture will only gradually feed into physical demand. After gold prices reached the USD 1,960/ounce mark in January, they fell significantly in February due to the pricing-in of a much more restrictive monetary policy by the Fed. With the G10 central banks and the Fed likely to have reached terminal rates by the middle of this year and central banks likely to continue to exert strong demand, we believe gold prices should remain strong.
Oil prices are down from last year but are likely to remain elevated.
- Tight oil markets likely to lead to higher oil prices
- Physical demand for copper expected to increase gradually
- Central banks to play a key role for gold
FX
Due to the favourable winter weather the FX market has priced out the previous excessively pessimistic Eurozone growth outlook. This was the main driver of USD depreciation versus the EUR from November until January. The improving growth prospects should still attract inflows into Eurozone assets and support the single currency. Markets repriced the rate path in February, the USD was able to regain some ground. Not only the ECB but also the Fed are committed to their respective inflation targets. The ongoing discussion about a mild recession in the U.S. should dampen risk sentiment, thus supporting the USD as a safe-haven currency. As we expect inflation in the Eurozone to be more structural than in the U.S., the ECB should keep rates high for longer than the Fed. We therefore expect moderate upside for the euro versus the USD, with the EUR/USD trading at 1.10 at the end of March 2024. In Japan we expect a re-assessment of the ultra-loose monetary policy after Kazuo Ueda becomes BoJ governor in April. A slow but gradual increase in the policy rate should follow the ending of the unsustainable yield curve control policy and support the JPY. By the end of March 2024 we expect the yen to appreciate to USD/JPY 125. Like the Eurozone, the UK should avoid a severe recession. An expected warming of the relationship with the EU – signalled by negotiations on the Northern Ireland protocol – should improve sentiment regarding the GBP. GBP/USD could trade at 1.25 in March 2024. The high U.S. yield remains negative for CNY. However, positive Chinese growth dynamics and a potentially less restrictive Fed at the beginning of 2024 could result in a CNY below USD/CNY 7.00 at the end of Q1 2024.
| EUR vs. USD | 1.10 |
| USD vs. JPY | 125 |
| EUR vs. JPY | 138 |
| EUR vs. CHF | 1.05 |
| EUR vs. GBP | 0.89 |
| GBP vs. USD | 1.25 |
| USD vs. CNY | 6.95 |
- The EUR should appreciate moderately against the USD as the ECB is likely to keep rates high for longer than the Fed
- The JPY should benefit from a re-assessment of the ultra-loose monetary policy under the new BoJ governor Ueda and from China’s reopening
- In the medium term, the CNY could trade against the USD near the current level
Improving Eurozone growth outlook should attract asset inflows and support the EUR.
Real estate
Real estate markets have generally continued on the same trend as at the end of 2022. Central banks around the world are still busy fighting high inflation, while surprisingly robust economies point to more relentless inflationary pressures than previously thought. Accordingly, central bank rate expectations have risen in lockstep with financing costs in most major markets, weighing on property prices. Even though financial market turmoil has recently weighed on rate expectations, a stabilisation of the ailing banking sector may shift the focus back on to inflation with central banks resuming their hiking trajectories. At the same time, inflation – which is feeding into rents and translating into higher cap rates – and construction activity, which continues to be inhibited by high costs, are counteracting a sharper value decline. Property prices in the U.S. and much of Europe are still slightly up year-on-year, although they are now falling sequentially. Only a few countries with above-average household debt and a high proportion of variable rate loans, such as Sweden or Australia, are experiencing an outright slump. In addition, China, which lifted its zero-Covid measures at the end of last year, is probably on the verge of a rapid economic recovery that should support its crisis-ridden real estate sector. The correction on global real estate markets could continue briefly, but the bottom should be reached before long and a recovery should set in.
Across sectors, fundamentals remained in line with their historical averages, with vacancy rates in residential and industrial real estate remaining the bright spots. Due to the structural shift towards more home-based work and e-commerce, occupancy rates in the office and retail sectors continue to lag, hampering these segments’ ability to pass on inflation increases and making them more vulnerable to an eventual economic slowdown. Lastly, real estate investors are paying increasing attention to ESG factors. Growing evidence suggests that the energy-efficient building segment is far less impacted by the current rising interest rates and slowing of growth, offering scope for active management and energy retrofits.
- Real estate faltered as it headed into 2023 but bottom could be near
- Robust economies, rising rents and subdued construction activity bolstering property values
- Residential and industrial real estate remain in focus
04 Update on long-term investment themes
Our long-term investment themes (LTIT) are grouped into three areas: resource transition, population support and next-phase technology. These are the key global challenges: how to properly manage and conserve our global resources; how to provide for the global population; and how to develop key technologies to help us all do this.
Resource transition
Land Resources:This theme is about reducing consumption and encouraging conservation and recycling through technological as well as nature-based solutions. Climate change – with unpredictable impacts on land, mineral, water, plant and animal natural resources – is driving sustainability efforts and greater awareness of problems around economic growth and urbanisation.
Energy Transition:Major changes must be made to the production, distribution, and consumption of energy to meet net-zero CO2 targets. The theme also considers the enhancement of existing renewable technologies (e.g., solar, wind), and potential new energy sources (e.g. "green" hydrogen). Security as well as environmental concerns are making this an important focus of government policy.
Blue Economy:The Ocean is a major natural resource, both in terms of economic output and environmental protection – it absorbs around 30% of the world's total carbon emissions. But sustaining marine ecosystems will require the transformation of existing maritime industry value chains. The race for marine resources constitutes an increasing threat.
The Resource transition challenge encompasses the proper management and conservation of land, energy and the Ocean.
Population support
Infrastructure:Much investment is needed in traditional areas such as power grids, transmission towers, fibre optic networks, gas pipelines and storage, toll roads, ports, bridges and airports. Government support programmes increasingly cover social and information infrastructure too. Decarbonisation and other environmental measures are drivers of change, as is digitalisation.
HealthCare and MedTech:Many factors are combining to drive rapid change in the sector. Technological opportunities (e.g. in telemedicine and remote monitoring) and scientific advances (e.g. in biotechnology or genomics) are impacting both what medicine can do and how it is implemented. Increasing healthcare costs and fiscal pressures create significant challenges.
Millennials and GenZ:These two demographic groups are seen as prioritising easy access to goods and services rather than ownership. They are also more likely to expect companies to deliver environmental and social benefits. Their growing political power will affect economic policy, with inter-generational wealth inequality one focus.
Next phase technology
Artificial Intelligence:Rapid growth in its abilities is driving resources into areas such as deep learning, neuro-linguistic programming (NLP), image recognition, speech recognition, chatbots and cyber security. Implementation will likely broaden beyond current hotspots (e.g. healthcare and financial technology). Increasing regulation may struggle to address ethical and other concerns.
Smart Mobility:The three drivers here are sustainability (emissions and other environmental concerns), urbanisation (expected further growth and congestion) and changing consumer demand (rental vs. ownership). Different transport methods and ownership structures may be part of the response. Multiple technologies (e.g. IT, battery storage) will be involved.
Cyber Security:Increasing connectivity, artificial intelligence, the "internet of things“ (IOT) and potential “metaverse” developments all generate additional potential threats. Security spending by consumers, businesses and governments is expected to rise structurally. Industries particularly affected will continue to include manufacturing, financial services and healthcare.
Macroeconomic forecasts
| 2023 Forecast | 2024 Forecast | |
|---|---|---|
| GDP growth rate (%) | ||
| U.S.* | 0.7 | 1.1 |
| Eurozone (of which) | 0.8 | 1.1 |
| Germany | 0.3 | 1.2 |
| France | 0.7 | 0.8 |
| Italy | 0.7 | 0.9 |
| Spain | 1.2 | 1.5 |
| Japan | 1.0 | 0.8 |
| China | 5.5 | 5.3 |
| World | 2.7 | 3.1 |
| Consumer price index inflation (%) | ||
| U.S. | 3.9 | 2.4 |
| Eurozone | 5.7 | 2.7 |
| Germany | 6.0 | 3.2 |
| Japan | 2.5 | 1.7 |
| China | 2.5 | 2.5 |
*For the U.S., GDP growth Q4/Q4 % is -0.1% in 2023 and 1.8% in 2024.
Asset class forecasts
| Bond yield and spread forecasts for end-March 2024 | |
|---|---|
| United States (2-year Treasuries) | 4.40% |
| United States (10-year Treasuries) | 4.30% |
| United States (30-year Treasuries) | 4.40% |
| USD IG Corp (BarCap U.S. Credit) | 110bp |
| USD HY (Barclays U.S. HY) | 450bp |
| Germany (2-year Schatz) | 3.20% |
| Germany (10-year Bunds) | 2.90% |
| Germany (30-year Bunds) | 2.90% |
| United Kingdom (10-year Gilts) | 3.60% |
| EUR IG Corp (iBoxx Eur Corp all) | 110bp |
| EUR HY (ML Eur Non-Fin HY Constr.) | 420bp |
| Japan (2-year JGB) | 0.15% |
| Japan (10-year JGB) | 0.75% |
| Asia Credit (JACI) | 250bp |
| EM Sovereign (EMBIG Div.) | 470bp |
| EM Credit (CEMBI Broad) | 350bp |
| Equity index forecasts for end-March 2024 | |
|---|---|
| United States (S&P 500) | 4,100 |
| Germany (DAX) | 16,300 |
| Eurozone (Eurostoxx 50) | 4,350 |
| Europe (Stoxx600) | 480 |
| Japan (MSCI Japan) | 1,250 |
| Switzerland (SMI) | 11,100 |
| United Kingdom (FTSE 100) | 8,100 |
| Emerging Markets (MSCI EM) | 1,020 |
| Asia ex Japan (MSCI Asia ex Japan) | 670 |
| Australia (MSCI Australia) | 1,450 |
| Commodity price forecasts for end-March 2024 | |
|---|---|
| Gold (USD/oz) | 1,940 |
| Copper (USD/t) | 9,250 |
| Crude Oil (Brent Spot, USD/b) | 100 |
| FX forecasts for end-March 2024 | |
|---|---|
| EUR vs. USD | 1.10 |
| USD vs. JPY | 125 |
| EUR vs. JPY | 138 |
| EUR vs. CHF | 1.05 |
| EUR vs. GBP | 0.89 |
| GBP vs. USD | 1.25 |
| USD vs. CNY | 6.95 |
Source: Deutsche Bank AG. Forecasts as of March 6, 2023.
The Association of Southeast Asian Nations (ASEAN) comprises Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam.
The Bank of England (BoE) is the UK central bank.
Brent is a grade of crude oil used as a benchmark in oil pricing.
Bunds are longer-term bonds issued by the German government.
Carry investments are intended to deliver higher returns by through borrowing in a lower-yielding environment.
The Composite PMI (Purchasing Managers Index) tracks business trends by measuring the activity level of purchasing managers in both the manufacturing and service sectors.
CHF is the currency code for the Swiss franc.
CO2 is the chemical symbol for carbon dioxide.
The consumer price index (CPI) measures the price of a basket of products and services that is based on the typical consumption of a private household.
CPEXEMUY is the Bloomberg ticker (reference name) for the Eurostat Core Monetary Union Index of Consumer Prices, a core measure of consumer price inflation for a basket of goods and services within the Eurozone. This core metric excludes energy, food, alcohol and tobacco.
CPI XYOY is the Bloomberg ticker for the CPI Urban Consumers Less Food & Energy Index, a core measure of U.S. consumer price inflation. This core metric excludes food and energy.
CPI YOY is the Bloomberg ticker for the CPI Urban Consumers Index, an aggregate measure of U.S. consumer price inflation.
The DAX is a blue-chip stock-market index consisting of the 40 major German companies trading on the Frankfurt Stock Exchange.
Dividends are payments made by a company to its shareholders.
Earnings per share (EPS) are calculated as a company's net income minus dividends of preferred stock, divided by the total number of shares outstanding.
ECCPEST is the Bloomberg ticker for the Eurostat Monetary Union Index of Consumer Prices, an aggregate measure of consumer price inflation for all countries within the Eurozone.
An emerging market (EM) is a country that has some characteristics of a developed market in terms of market efficiency, liquidity and other factors, but does not meet all developed market criteria.
ESG investing pursues environmental, social and corporate governance goals.
The European Central Bank (ECB) is the central bank for the Eurozone.
EUR is the currency code for the euro, the currency of the Eurozone.
The EuroStoxx 50 Index tracks the performance of blue-chip stocks in the Eurozone and includes the super-sector leaders in terms of market capitalisation.
The Eurozone is comprised of 19 European Union member states that have adopted the euro as their common currency and sole legal tender.
The Fed funds rate is the interest rate at which U.S. depository institutions lend overnight to other depository institutions.
The Federal Reserve (Fed) is the central bank of the United States. Its Federal Open Market Committee (FOMC) meets to determine interest rate policy.
The G10 is a group of industrialised nations with overlapping economic interests. Its member countries are Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.
GBP is the currency code for the British pound/sterling.
Gilts are bonds that are issued by the British Government.
Government bonds are issued by a government to support government spending, mostly in the country's domestic currency and are backed by the full faith of the government.
Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.
The Harmonised Index of Consumer Prices (HICP) is an approach to measuring consumer price inflation which has been standardised across EU countries.
Headline PCE (personal consumption expenditure) inflation tracks price changes in a basket of goods and services designed to cover all the expenditures typically made by consumers, whereas core PCE – the Federal Reserve's preferred inflation metric – excludes some volatile components. In the U.S., food and energy are excluded from core PCE inflation.
High yield (HY) bonds are higher-yielding bonds with a lower credit rating than investment-grade corporate and government bonds.
The International Monetary Fund (IMF) was founded in 1994, includes 189 countries and works to promote international monetary cooperation, exchange rate stability and economic development more broadly.
An investment grade (IG) rating by a rating agency such as Standard & Poor's indicates that a bond is seen as having a relatively low risk of default.
A Japanese Government Bond (JGB) is a bond issued by the government of Japan.
JPY is the currency code for the Japanese yen, the Japanese currency.
The median is the data point lying at the middle of a data range.
The MSCI AC World Index captures large- and mid-cap companies across 23 developed- and 23 emerging-market countries.
The MSCI Asia ex Japan Index captures large- and mid-cap representation across 2 of 3 developed market countries (excluding Japan) and 8 emerging-market countries in Asia.
The MSCI Australia Index measures the performance of 60 large and mid-cap stocks that constitute approximately 85% of the free float-adjusted market capitalisation in Australia.
The MSCI EM Index captures large- and mid-cap representation across 23 emerging market countries.
The MSCI Japan Index measures the performance of 259 large and mid-cap stocks that account for about 85% of Japanese market capitalisation.
The NASDAQ index is a market capitalisation-weighted index of around 3,000 equities listed on the Nasdaq exchange.
The National Bureau of Economic Research founded in 1920 in the U.S. conducts and disseminates non-partisan economic research.
The National Energy Administration of China drafts China's national energy strategy, implements energy policy, and regulates the country’s energy sectors.
NTM stands for next twelve months in the context of earnings and thus price/earnings ratios.
The Organization of the Petroleum Exporting Countries (OPEC) is an international organisation which aims to "coordinate and unify the petroleum policies" of its 12 members. The so-called "OPEC+" brings in Russia and other producers.
Price/earnings (P/E) ratios measure a company's current share price relative to its past or expected future earnings per share.
Real rates adjust changes of value for factors such as inflation.
The refinery run rate, or utilisation rate, is the proportion of crude oil processed by a refinery relative to its total processing capacity.
Risk premia refer to the return in excess of the risk-free rate of return that an investment is expected to yield. It is a form of compensation to investors for tolerating the extra risk.
The S&P 500 Index includes 500 leading U.S. companies capturing approximately 80% coverage of available U.S. market capitalization.
The Stoxx Europe 600 is a broad-based index that tracks the performance of 600 companies of various sizes from 17 European countries.
The Swiss Market Index (SMI) includes 20 large and mid-cap stocks.
A spread is the difference in the quoted return on two investments, most commonly used when comparing bond yields.
A strategic asset allocation process involves setting preferred allocations for asset classes on a medium to long-term time horizon.
Treasuries are bonds issued by the U.S. government.
The yield curve control policy of the Bank of Japan uses bond purchases and sales to target both short-term rates and longer-dated government bond yields.
General This document may not be distributed in Canada or Japan. This document is intended for retail or professional clients only. This document is being circulated in good faith by Deutsche Bank Aktiengesellschaft, its branches (as permitted in any relevant jurisdiction), affiliated companies and its officers and employees (collectively, “Deutsche Bank”). This material is for your information only and is not intended as an offer, or recommendation or solicitation of an offer to buy or sell any investment, security, financial instrument or other specific product, to conclude a transaction, or to provide any investment service or investment advice, or to provide any research, investment research or investment recommendation, in any jurisdiction. All materials in this communication are meant to be reviewed in their entirety. If a court of competent jurisdiction deems any provision of this disclaimer unenforceable, the remaining provisions will remain in full force and effect. This document has been prepared as a general market commentary without consideration of the investment needs, objectives or financial circumstances of any investor. Investments are subject to generic market risks which derive from the instrument or are specific to the instrument or attached to the particular issuer. Should such risks materialise, investors may incur losses, including (without limitation) a total loss of the invested capital. The value of investments can fall as well as rise and you may not recover the amount originally invested at any point in time. This document does not identify all the risks (direct or indirect) or other considerations which may be material to an investor when making an investment decision. This document and all information included herein are provided “as is”, “as available” and no representation or warranty of any kind, express, implied or statutory, is made by Deutsche Bank regarding any statement or information contained herein or in conjunction with this document. To the extent permissible under applicable laws and regulations, please note that we are making no representation as to the profitability of any financial instrument or economic measure. All opinions, market prices, estimates, forward looking statements, hypothetical statements, forecast returns or other opinions leading to financial conclusions contained herein reflect Deutsche Bank’s subjective judgment on the date of this document. Without limitation, Deutsche Bank does not warrant the accuracy, adequacy, completeness, reliability, timeliness or availability of this communication or any information in this document and expressly disclaims liability for errors or omissions herein. Forward looking statements involve significant elements of subjective judgments and analyses and changes thereto and/or consideration of different or additional factors could have a material impact on the results indicated. Therefore, actual results may vary, perhaps materially, from the results contained herein. Deutsche Bank does not assume any obligation to either update the information contained in this document or inform investors about available updated information. The information contained in this document is subject to change without notice and based on a number of assumptions which may not prove valid and may be different from conclusions expressed by other departments within Deutsche Bank. Although the information contained in this document has been diligently compiled by Deutsche Bank and derived from sources that Deutsche Bank considers trustworthy and reliable, Deutsche Bank does not guarantee or cannot make any guarantee about the completeness, fairness, or accuracy of the information and it should not be relied upon as such. This document may provide, for your convenience, references to websites and other external sources. Deutsche Bank takes no responsibility for their content and their content does not form any part of this document. Accessing such external sources is at your own risk. To the extent permissible under applicable laws and regulations, this document is for discussion purposes only and is not intended to create any legally binding obligations on Deutsche Bank and/or its affiliates (“Affiliates”), and Deutsche Bank is not acting as your financial advisor or in a fiduciary capacity unless otherwise expressly agreed by Deutsche Bank in writing. Before making an investment decision, investors need to consider, with or without the assistance of an investment adviser, whether any investments and strategies described or provided by Deutsche Bank, are appropriate, in light of their particular investment needs, objectives, financial circumstances, the possible risks and benefits of such investment decision and instrument specifics. When making an investment decision, potential investors should not rely on this document but only on what is contained in the final offering documents relating to the investment. As a global financial services provider, Deutsche Bank from time to time faces actual and potential conflicts of interest. Deutsche Bank’s policy is to take all appropriate steps to maintain and operate effective organisational and administrative arrangements to identify and manage such conflicts. Senior management within Deutsche Bank are responsible for ensuring that Deutsche Bank’s systems, controls and procedures are adequate to identify and manage conflicts of interest. Deutsche Bank does not give tax or legal advice, including in this document and nothing in this document should be interpreted as Deutsche Bank providing any person with any investment advice. Investors should seek advice from their own tax experts, lawyers, and investment advisers in considering investments and strategies described by Deutsche Bank. Unless notified to the contrary in a particular case, investment instruments are not insured by any governmental entity, not subject to deposit protection schemes and not guaranteed, including by Deutsche Bank. This document may not be reproduced or circulated without Deutsche Bank’s express written authorisation. Deutsche Bank expressly prohibits the distribution and transfer of this material to third parties. Deutsche Bank accepts no liability whatsoever arising from the use or distribution of this material or for any action taken or decision made in respect of investments mentioned in this document the investor may have entered into or may enter in future. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including, without limitation, the United States. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction, where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Deutsche Bank to any registration or licensing requirement within such jurisdiction not currently met. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions. Past performance is no guarantee of future results; nothing contained herein shall constitute any representation, warranty, or prediction as to future performance. Further information is available upon investor’s request. Deutsche Bank Aktiengesellschaft (“Deutsche Bank AG”) is authorized to conduct banking business and to provide financial services as set forth in the German Banking Act (“Kreditwesengesetz”). Deutsche Bank AG is subject to comprehensive supervision by the European Central Bank (“ECB”), by the German Federal Financial Supervisory Authority (BaFin) and by the Deutsche Bundesbank (“Bundesbank”), Germany’s central bank. Kingdom of Bahrain For Residents of the Kingdom of Bahrain: This document does not constitute an offer for sale of, or participation in, securities, derivatives or funds marketed in Bahrain within the meaning of Bahrain Monetary Agency Regulations. All applications for investment should be received and any allotments should be made, in each case from outside of Bahrain. This document has been prepared for private information purposes of intended investors only who will be institutions. No invitation shall be made to the public in the Kingdom of Bahrain and this document will not be issued, passed to, or made available to the public generally. The Central Bank (CBB) has not reviewed, nor has it approved, this document or the marketing of such securities, derivatives, or funds in the Kingdom of Bahrain. Accordingly, the securities, derivatives or funds may not be offered or sold in Bahrain or to residents thereof except as permitted by Bahrain law. The CBB is not responsible for performance of the securities, derivatives, or funds. State of Kuwait This document has been sent to you at your own request. This presentation is not for general circulation to the public in Kuwait. The Interests have not been licensed for offering in Kuwait by the Kuwait Capital Markets Authority or any other relevant Kuwaiti government agency. The offering of the Interests in Kuwait on the basis a private placement or public offering is, therefore, restricted in accordance with Decree Law No. 31 of 1990 and the implementing regulations thereto (as amended) and Law No. 7 of 2010 and the bylaws thereto (as amended). No private or public offering of the Interests is being made in Kuwait, and no agreement relating to the sale of the Interests will be concluded in Kuwait. No marketing or solicitation or inducement activities are being used to offer or market the Interests in Kuwait. United Arab Emirates Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG -DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority. State of Qatar Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG -QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority. Kingdom of Belgium This document has been distributed in Belgium by Deutsche Bank AG acting though its Brussels Branch. Deutsche Bank AG is a stock corporation (“Aktiengesellschaft”) incorporated under the laws of the Federal Republic of Germany and licensed to carry on banking business and to provide financial services subject to the supervision and control of the European Central Bank (“ECB”) and the German Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht” or “BaFin”).Deutsche Bank AG, Brussels Branch has its registered address at Marnixlaan 13-15, B-1000 Brussels, registered at the RPM Brussels, under the number VAT BE 0418.371.094. Further details are available on request or can be found at www.deutschebank.be. Kingdom of Saudi Arabia Deutsche Securities Saudi Arabia (DSSA) is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) with a license number (No. 37-07073). Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. DSSA registered office is at Faisaliah Tower, 17th floor, King Fahad Road, Al Olaya District Riyadh, Kingdom of Saudi Arabia P.O. Box 301806. United Kingdom This document is a financial promotion and is communicated by Deutsche Bank Wealth Management. Deutsche Bank Wealth Management is a trading name of DB UK Bank Limited. Registered in England & Wales No. 315841. Registered Office: 23 Great Winchester Street, London, EC2P 2AX. DB UK Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Registration Number 140848. DB UK Bank is a member of the Deutsche Bank Group. Hong Kong Deutsche Bank Aktiengesellschaft is incorporated in the Federal Republic of Germany and its members’ liability is limited. This material is intended for: Professional Investors in Hong Kong. Furthermore, this material is provided to addressee only, further distribution of this material is strictly prohibited. This document and its contents are provided for information only. Nothing in this document is intended to be an offer of any investment or a solicitation or recommendation to buy or to sell an investment and should not be interpreted or construed as an offer, solicitation, or recommendation. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the investments contained herein (if any). If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has not been approved by the Securities and Futures Commission in Hong Kong (the “SFC”) nor has a copy of this document been registered by the Registrar of Companies in Hong Kong, unless specified otherwise. The investments contained herein may or may not be authorised by the SFC. The investments may not be offered or sold in Hong Kong, by means of any document, other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”) and any rules made under the SFO, or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong)(the “C(WUMP)O”) or which do not constitute an offer to the public within the meaning of the C(WUMP)O. No person shall issue or possess for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the investments, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to investments which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO. Singapore This material is intended for: Accredited Investors / Institutional Investors in Singapore. Furthermore, this material is provided to addressee only, further distribution of this material is strictly prohibited. United States In the United States, brokerage services are offered through Deutsche Bank Securities Inc., a broker-dealer and registered investment adviser, which conducts securities activities in the United States. Deutsche Bank Securities Inc. is a member of FINRA, NYSE and SIPC. Banking and lending services are offered through Deutsche Bank Trust Company Americas, member FDIC, and other members of the Deutsche Bank Group. In respect of the United States, see earlier statements made in this document. Deutsche Bank makes no representations or warranties that the information contained herein is appropriate or available for use in countries outside of the United States, or that services discussed in this document are available or appropriate for sale or use in all jurisdictions, or by all counterparties. Unless registered, licensed as otherwise may be permissible in accordance with applicable law, none of Deutsche Bank or its affiliates is offering any services in the United States or that are designed to attract US persons (as such term is defined under Regulation S of the United States Securities Act of 1933, as amended).This United States-specific disclaimer will be governed by and construed in accordance with the laws of the State of Delaware, without regard to any conflicts of law provisions that would mandate the application of the law of another jurisdiction. Germany This information is advertising. The texts do not meet all legal requirements to ensure the impartiality of investment and investment strategy recommendations or financial analyses. There is no prohibition for the compiler or for the company responsible for the compilation to trade with the respective financial instruments before or after the publication of these documents. The information contained in this document does not constitute an investment recommendation, investment advice or a recommendation to act, but is intended solely for information purposes. The information does not replace advice tailored to the individual circumstances of the investor. General information on financial instruments is contained in the brochures "Basic Information on Securities and Other Investments", "Basic Information on Financial Derivatives", "Basic Information on Forward Transactions" and the information sheet "Risks in Forward Transactions", which the customer can request from the Bank free of charge. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analyses. Although, from the Bank's point of view, they are based on adequate information, it may turn out in the future that they are not accurate or correct. Past performance or simulated performance is not a reliable indicator of future performance. Unless otherwise indicated in this document, all statements of opinion reflect the current assessment of Deutsche Bank, which may change at any time. Deutsche Bank assumes no obligation to update the information contained in this document or to notify investors of any available updated information. Deutsche Bank AG is a stock corporation (“Aktiengesellschaft”) incorporated under the laws of the Federal Republic of Germany with principal office in Frankfurt am Main. It is registered with the district court (“Amtsgericht”) in Frankfurt am Main under No HRB 30 000 and licensed to carry on banking business and to provide financial services. Supervisory authorities: The European Central Bank (“ECB”), Sonnemannstrasse 22, 60314 Frankfurt am Main, Germany and the German Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht” or “BaFin”), Graurheindorfer Strasse 108, 53117 Bonn and Marie-Curie-Strasse 24-28, 60439 Frankfurt am Main, Germany. India The investments mentioned in this document are not being offered to the Indian public for sale or subscription. This document is not registered and/or approved by the Securities and Exchange Board of India, the Reserve Bank of India, or any other governmental/ regulatory authority in India. This document is not and should not be deemed to be a “prospectus” as defined under the provisions of the Companies Act, 2013 (18 of 2013) and the same shall not be filed with any regulatory authority in India. Pursuant to the Foreign Exchange Management Act, 1999 and the regulations issued there under, any investor resident in India may be required to obtain prior special permission of the Reserve Bank of India before making investments outside of India including any investments mentioned in this document. Italy This report is distributed in Italy by Deutsche Bank S.p.A., a bank incorporated and registered under Italian law subject to the supervision and control of Banca d’Italia and CONSOB. Luxembourg This report is distributed in Luxembourg by Deutsche Bank Luxembourg S.A., a bank incorporated and registered under Luxembourg law subject to the supervision and control of the Commission de Surveillance du Secteur Financier. Spain Deutsche Bank, Sociedad Anónima Española is a credit institution regulated by the Bank of Spain and the CNMV and registered in their respective Official Registries under the Code 019. Deutsche Bank, Sociedad Anónima Española may only undertake the financial services and banking activities that fall within the scope of its existing license. The principal place of business in Spain is located in Paseo de la Castellana number 18, 28046 - Madrid. Registered in the Mercantile Registry of Madrid, volume 28100, book 0. Folio 1. Section 8. Sheet M506294. Registration 2. NIF: A08000614. This information has been distributed by Deutsche Bank, Sociedad Anónima Española. Portugal Deutsche Bank AG, Portugal Branch is a credit institution regulated by the Bank of Portugal and the Portuguese Securities Commission (“CMVM”), registered with numbers 43 and 349, respectively and with commercial registry number 980459079. Deutsche Bank AG, Portugal Branch may only undertake the financial services and banking activities that fall within the scope of its existing license. The registered address is Rua Castilho, 20, 1250-069 Lisbon, Portugal. This information has been distributed by Deutsche Bank AG, Portugal Branch. Austria This document is distributed by Deutsche Bank AG Vienna Branch, registered in the commercial register of the Vienna Commercial Court under number FN 140266z. Deutsche Bank AG is a public company incorporated under German law and authorized to conduct banking business and provide financial services. It is supervised by the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frankfurt am Main, Germany and by the Federal Financial Supervisory Authority (BaFin), Graurheindorfer Straße 108, 53117 Bonn, Germany and Marie-Curie-Strasse 24-28, 60439 Frankfurt am Main, Germany. The Vienna branch is also supervised by the Austrian Financial Market Authority (FMA), Otto-Wagner Platz 5, 1090 Vienna. This document has neither been submitted to nor approved by the aforementioned supervisory authorities. Prospectuses may have been published for certain of the investments mentioned in this document. In such a case, investment decisions should be made solely on the basis of the published prospectuses, including any annexes. Only these documents are binding. This document constitutes marketing material for informational and promotional purposes only and is not the result of any financial analysis or research. The Netherlands This document is distributed by Deutsche Bank AG, Amsterdam Branch, with registered address at De entree 195 (1101 HE) in Amsterdam, the Netherlands, and registered in the Netherlands trade register under number 33304583 and in the register within the meaning of Section 1:107 of the Netherlands Financial Supervision Act (Wet op het financieel toezicht). This register can be consulted through www.dnb.nl. © Deutsche Bank AG 2022 052733 032123